Too many fleet managers put price first claims Activa

Price is the last question fleet managers should ask prior to appointing a supplier but too frequently it is the first, according to Ian Hill, managing director of Activa Contracts.

Addressing a seminar on funding, procurement and complex fleets, held by the Fleet Industry Advisory Group (FIAG) Hill, a FIAG founding member, advised fleet managers that value for money should be a prime criterion in supplier selection alongside their ability to deliver, their culture and their fit with the fleet.

Focusing on fleet funding considerations, Hill said there was “no vanilla solution” and added: “One size fits all doesn’t apply and in more complex fleets a combination of funding solutions may be best.”

He highlighted seven factors fleet managers should take into account prior when considering the optimum vehicle funding route for their business from the myriad of options available.

Those factors were:

• The company’s corporation tax position
• The company’s VAT situation
• The organisation’s cash situation
• The employer’s rate of return on capital employed
• Corporate balance sheet implications
• The level of internal fleet expertise
• The culture of the business and its attitude to financial risk and outsourcing.

Having analysed those factors Hill said an organisation was then able to decide its fleet funding strategy. Although contract hire and outright purchase remain the two most popular vehicle funding mechanisms other options include: hire purchase, lease purchase, contract purchase, finance lease and operating lease.

“Different solutions will apply depending on the individual situation of the business, said Hill who suggested that professional evaluation systems that analysed all available information were key in pinpointing the best policy.

He claimed that contract hire was typically the lowest cost solution for “normal” businesses with mainstream corporate tax and VAT positions, were cashflow conscious, averse to risk, preferred off-balance sheet funding and had limited fleet management expertise.

However, he suggested the outright purchase of vehicles could be applicable for organisations that could not, or only partially, recover VAT, qualified for zero or minimal corporation tax relief, preferred assets to be on their balance sheet, employed internal/external fleet management expertise, were not averse to risk or were cash rich.

Similarly when considering whether to undertake fleet management in-house or outsource there was no single answer, explained Mr Hill, who highlighted that the decision-making process should focus on:

• The size and composition of the fleet and the location of vehicles
• The level of in-house expertise and fleet management infrastructure
• The culture of the business and its attitude to risk.

“Major fleets with a strong commercial vehicle mix are more likely to have an in-house fleet management solution, while company car fleets are more likely to outsource to lessors and specialists due to a lack of internal expertise,” he suggested.

Having made funding and fleet management decisions, Hill said businesses next had to decide whether to acquire services on a bundled or piecemeal basis.

When going out to tender Hill said related documents should clearly specify what was required and “add structure and not confuse” and that procurement departments could be either “a Godsend or a hindrance” with employees with fleet responsibility “driving the entire process”.

He warned fleet managers: “Do not agree something blindly and ask the price. Background work needs to be undertaken because finding the right supplier cannot be done remotely.”

Hill concluded: “Throughout the whole process fleet managers must ask themselves whether they want to retain the status quo or whether better solutions exist. I think the status quo is no longer acceptable; the industry is moving too fast for that.”